Sachidanand
Many of those favouring the three controversial farm laws have claimed that the value of all MSP crops for the government could be Rs 15 lakh crore. The astronomically high number could easily agitate and baffle many common people causing resentment against protesting farmers.
But the claim by these experts may not hold. The Centre sets benchmark prices of MSP of 22 crops including jute and fair and remunerative price (FRP) of sugarcane. There is no burden on the government to buy at MSP/FRP for jute and sugarcane since under separate laws mills/factories are mandated to purchase at government-set prices. Another crop is copra, which does not entail much burden on the government since its market rates are nearly at par with MSP. Still, the government spends Rs 4,000-5,000 crore to buy them while the loss, if any, in selling the crop in open market is not more than Rs 100 crore.
The MSP value of marketable surplus of 20 kharif and rabi crops was Rs 7.52 lakh crore during 2019-20 (July-June). As reported in a section of media, the total procurement cost of paddy, wheat, pulses and oilseeds was Rs 2.19 lakh crore during this period out of which share of paddy and wheat is over 90%.
While the bulk of rice and wheat is sold through ration shops at highly subsidized rates leading to higher subsidy year after year, some quantity is also sold in open market in which subsidy is marginal. Similarly, there is profit in some oilseeds and pulses at times while the government bears losses. The loss on account of this is not more than Rs 1,000 crore annually depending on quantity purchased.
If MSP is legally guaranteed the entire burden would not fall on the government as claimed by some experts. The experts have actually cited isolated instances of Maharashtra and Madhya Pradesh where the government tried to enforce MSP on some crops by making it compulsory for private traders. But enforcement of MSP in one state will never work as traders will not be able to sell in other states where rates are low. Besides, higher rates would make business sense for traders in these states to sell foodgrains in MSP-enforced zone.
In case MSP is made compulsory across India the above scenario would not arise at all.
However, there could be crops available below MSP as the guarantee price has to be based on certain quality standards. Neither farmers nor their leaders have ever demanded that they should be paid MSP irrespective of quality. It is perhaps some experts’ imagination.
Another argument relates to conforming to quality issues in paying MSP. But for that necessary infrastructure facilities have to be in place. Insistence on checking and grading facilities before making MSP legal is a chicken-egg theory as no one in private sector will invest in idle facility and the government is not keen to put in their money.
The Agri Infrastructure Fund can be utilised to speed up setting such facilities at village levels. This itself will rejuvenate a lot of industries and create additional employment opportunities. It may be mentioned that all states and their agencies purchase 400 lakh tonne of wheat in 1-2 months following certain quality parameters.
The other argument put forward by some experts is that MSP had so far benefitted only Punjab and Haryana. So what is its use? When procurement happens, the Centre asks each state about the quantity it wants to buy under MSP. There is no quantitative restriction. Because some states do not work sincerely to benefit their farmers, the MSP system cannot be questioned.
Madhya Pradesh has done remarkably well in past few years on procurement – it became top state in wheat purchase this year, relegating Punjab to number two position. Similarly, Odisha, Chhattisgarh, Andhra Pradesh and Telangana are the new states that have contributed 230 lakh tonne of rice to Centre, whereas Punjab has done less than 110 lakh tonne.
A legal MSP will substantially bring down Centre’s burden to procure as farmers would get same price across grain markets. This will also help the government to reduce its cost on arthia and market fee as it will not have any compulsion to pay. It can decide what is best for it economically.
There is also an apprehension among some experts that the burden on government will be higher when private traders do not buy more than requirement and there is much surplus of a product. This possibility does exist initially as things will take time to settle in a new system.
Legalising MSP will have a greater positive result. As MSPs of crops are set at 50% profit over costs, farmers will not stick to wheat, paddy, sugarcane etc. They will decide which crop will give more than 50% profit and will opt for it. A big advantage is also seen in making India Atmanirbhar on edible oil as currently the country imports 70% of domestic demand.
The other concern is about price parity in exports. The sugarcane-sugar price formula can be applied there. There is government-set minimum price for sugarcane which sugar mills have to pay. However, the government pays some amount to sugarcane farmers on behalf of sugar mills after linking the assistance with export. The subsidy is intended to lower the cost of raw material (sugarcane) for the sugar mills.
MSP Solution
As enforcing MSP for 20 crops has been a long-pending demand, the government may consider a formula under which the Centre and State could transfer the price difference directly to farmers’ bank accounts.
Accordingly, when open market (mandi) price is lower than MSP, the difference amount could be worked out based on all-India and state weighted average mandi price of crops during the major period (3-5 months) of harvesting season. The Centre will share its liability at all-India weighted average basis while states would chip in for the balance amount if the rate is further lower than the all-India average.
Currently the all-India weighted average price of crops is near MSP as rates in consuming states are higher than producing states. However, there is a possibility of price correction when states will ensure their produce is off-loaded in consuming states to minimise their liability.
Secondly, the Centre may prepare a contingency procurement system where it can buy crops whenever there is no purchase by traders and keep on off-loading in the market continuously at same rate. Third, states could be given fixed amount to ensure MSPs to their farmers at 50:50 ratio. In this case, states will get a fixed amount from the Centre based on the crop production in their state. They will have to contribute the remaining amount from their own budget.
Fourth, MSP could be linked to exports where quality standards are followed. That itself will improve quality of all crops. Further, the benefits of private sector may also be linked to MSPs to encourage them to pay the benchmark rates in crops where there is parity with global price. For other crops below global rates, the government may think of sugar subsidy-type formula.
(The author is a Delhi-based journalist. Views expressed are personal)
Also read: Untold facts of 3 farm laws Part I: Why law needs a tweak
Also read: Untold facts of 3 farm laws Part II: Closure of APMC mandis to benefit corporates, destroy benchmark price